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FCA to consult on long-stop for advisers

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The FCA is to consult on the introduction of a 15-year long-stop for financial advisers as part of the Financial Advice Market Review.

In a consultation paper on the FAMR jointly published by the FCA and the Treasury today, the regulator says it will evaluate the options around implementing a long-stop.

The FCA says it will consider the following options: maintaining the current regime, introducing a long-stop, introducing varied limitation periods linked to the terms of products, strengthening professional indemnity insurance, and setting up a compensation fund.

It says the long-stop could be for 15 years, or “a different time period recognising the long life of financial services products”.

The FCA says enhanced PI cover for advisers would include cover sufficient to meet claims relating to long-term advice, whether the firm is still in business or not.

The compensation fund would pay out in the event of a justified claim older than 15 years against an individual firm, which all firms would contribute to. However, unlike the Financial Services Compensation Scheme, the fund would not require the firm to be insolvent before paying out.

The consultation paper says: “There is a concern that firms perceive that the risks they face are too high as a result of their ongoing liability, and so may be discouraged from providing advice about long-term products. Similarly, the absence of a longstop could potentially cause a barrier to entry or exit from the financial advice market, either for individual advisers or firms.

“The absence of a long stop may further contribute to higher costs to firms through greater PI insurance premiums across the industry.

“As part of our review we will be evaluating the options around implementing a longstop. This will include considering if it may be possible to put in place an alternative approach to providing an appropriate level of protection for consumers which might also remove or reduce the burden of indefinite liability on individual firms.”

The paper says that in 2014/15, only 254 cases were taken to the Financial Ombudsman Service against advisers relating to incidents which occurred more than 15 years ago. Of these, 30 per cent, or 76 cases were upheld.

The regulator said it would consider the case for a 15-year long stop on complaints to the Financial Ombudsman Service in its 2014/15 business plan, published in March 2014.

Talks were delayed after the FCA pointed to an EU directive as a barrier to progress. But in December the regulator confirmed the directive would not stand in the way of a long-stop.



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There are 7 comments at the moment, we would love to hear your opinion too.

  1. You can put that notion where the sun doesn’t shine! Yet another sinking fund administered by high salaries and paid for by the clients of the good (again). What an industry this is!

  2. I am just preparing a response to FOS regarding a matter that occurred in 1992. The client was a nuclear engineer, now his brain has melted he says he did not understand the numbers! (He does not now but in 1992 he could have explained them to me!) I retired two years ago, and I am tired, but I cannot get paid for my firm until the matter is settled. I know acted extremely scrupulously and followed guidelines that were even not introduced until later, yet still it goes on, and on and on. FOR THE SAKE OF FAIRNESS, PLEASE INTRODUCE LONGSTOP!!!!!!!!!!!
    If longstop is not introduced, I strongly recommend all current IFAs, GET OUT NOW!

  3. Even with the long term nature of much of what we do. If you haven’t noticed after 15 years that you’ve been sold a pup, you are really not paying attention. A well publicised long stop would encourage people to review what they have more closely.

    I like the idea of another fund that I could contribute to to fund the ills of others. I have a better idea. Why don’t we just close down because the FCA and it’s many money sucking quangos have broadly taken all of the profit out of doing this but left all of the liability.

  4. Why doesn’t the FCA just abide by the law of the land – The Limitations Act exists to define such matters. The act that created the FCA the FSMA 2000 offered no exemptions to the regulator or FOS to ignore the Limitations Act nor was it discussed in the passing of the FSMA. The Government wants to circumvent the Limitations Act it should pass a law doing so and we can then fight it Parliament.

    All the other actions such as PI and funds rarely work particularly for already retired advisers.

    Point of Principle: If you aid the regulator to ignore the Law do not be surprised tat it ignores a law you like later

  5. @garry heath

    Could not make it clearer, this seems the most obvious reference point. But obvious is not a regulatory noun or verb that is recognised easily or ever

  6. Garry ~ The reason why the FCA doesn’t abide by the Law of the Land is that it considers itself to be above, beyond and exempt from it. It even tried that one to rebuff the Treasury’s proposed intervention but, I have it on good authority, was told in no uncertain terms: Wrong, Buster. You’ve been allowed for far too long to make up your own rules as you go and look at the mess the industry’s in as a result. That’s all going to change, so get with the new programme or GTF out. I wonder if Linda Woodhall was there? Oh, how I wish I’d been a fly on the wall.

    Would somebody kindly draw to Harriet Baldwin’s attention and, come to that, the entire TSC, the Statutory Code of Practice, from which the FSA and then the FCA has been allowed to get away with having accorded itself a unilateral and total opt-out. I’ve never understood why APFA appears to act as if the Code simply doesn’t exist. Does anyone know?

  7. When the Financial Services Act was debated in Parliament the question of withdrawing the longstop was never raised, debated or voted on.

    The FSA took it upon itself to assume it had sufficient powers to abrogate a protection afforded to every other UK citizen. John Tiner admitted this within the FSA committee minutes in September 2003.

    The FSA was a failure, to the extent that it was dismembered and replaced with a clone called the FCA. The FCA seeks to distance itself from the failures of the FSA and what clearer message could it give the industry than the return of a statutory defence that was summarily removed without the approval or permission of parliament.

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